Week of novemBER 4th

The week ended with the BOJ  leaving interest rates unchanged, inflation topping economist estimates in the Eurozone, and US data on GDP, PCE, and the NFP setting up another active week.

Important events for the upcoming week include the FOMC meeting, the US elections, and the BOE and RBA interest rate decisions.

Week in Review

The data in the lead-up to the important US jobs report suggested a soft landing for the US economy, supporting expectations that the Fed would continue gradually cutting interest rates. Third-quarter economic growth came in at 2.8% annually, below forecasts of 2.9% but still positive, while PCE inflation remained steady. The Fed's GDPNow initial forecast predicted 2.7% growth in the fourth quarter. Meanwhile, tech stocks fell after major companies reported results, with analysts citing profit-taking. Following Microsoft and Meta earnings announcements, the Nasdaq lost over 2% on Thursday.

The BOJ kept rates unchanged, as expected. However, its governor, Kazuo Ueda, signalled a possible hike at its next meeting due to stabilising market conditions and external factors driving large moves. These comments sparked a yen rally, easing upside pressure on USD/JPY closer to the 200-day moving average of 151.50.

In the UK, Chancellor of the Exchequer Rachel Reeves's budget outlined increased taxes and spending, which could fuel inflation and slow the pace of interest rate cuts by the BOE. Despite falling in the aftermath of the announcement, the British pound and the UK's benchmark index, the FTSE 100, recovered some of the initial losses as traders reassessed the upward GDP revision for 2024.

Flash GDP figures in Germany showed the country avoided falling into recession as Eurozone inflation came in higher than projected, reducing expectations for further easing by the ECB. This supported the euro higher, which found resistance at the 200-week moving average of 1.0880.

At the start of the week, geopolitics initially drove markets, with limited conflict between Iran and Israel followed by signals of de-escalating tensions over the weekend. Meanwhile, the ruling party lost its majority in Japan, and the Prime Minister pledged to form a minority government. Attention also turned to the US elections, with the prospect of a second Trump term potentially pushing yields up due to worries over renewed trade disputes. Finally, reports suggested Germany's governing coalition is fractured, and an early general election could occur by next spring.

Biggest Market Movers

• Oil prices plummeted by over 6% on Monday due to easing tensions in the Middle East but rebounded nearly 7% after reports emerged that Iran was contemplating retaliatory action against Israel.
• Gold reached an all-time high mid-week due to ongoing uncertainty around the upcoming US election.
• The EUR/USD pair trended upwards over the course of the week following remarks from the ECB's Christine Lagarde, which largely restated her previous stance but were regarded as more restrictive.

Top Events in the Week Ahead

Election, FOMC in Focus

The US will again be the focus for markets, with the election on Tuesday and potentially known results throughout the evening. Markets are somewhat apprehensive of the possibility of a close election drawing out the results and any major policy announcements the President-Elect might make. The Dow Jones has support near the 40,000 handle and resistance past the recorded high of 43,460 at 44,000 and perhaps beyond.

The Fed will hold a one-day postponed FOMC meeting, with a decision expected on Thursday to cut interest rates by 25 basis points and lay the groundwork for a similar cut in December. The trade deficit is anticipated to expand as exports are forecast to contract while imports increase, but the reaction is expected to be muted. Gold could spike to new records, focusing on the $2,800 and $2,900 handles on the one side and $2,650 per ounce on the other.

As the NPC meets, markets will also pay close attention to China's economy. Congress is expected to approve stimulus measures and provide specific spending targets and details on fiscal support policies. The reaction could see Japan's Nikkei finally moving away from the 200-week moving average of 37,600, with support and resistance above 41,000 and below 35,000.

Further Policy Decisions

The BOE will announce its latest interest rate decision on Thursday. Markets still slightly favour a 25 basis point cut but will pay close attention to how many members of the MPC vote for each option. Futures markets recently indicated around an 80% chance of a quarter-point decrease by the end of the week. GBPUSD could reclaim the 1.31 handle after bouncing at the 200-week moving average of 1.2840 unless the BOE reveals a more dovish stance, opening the door to the 50-week moving average of 1.2750.

The RBA is expected to leave rates unchanged for the twelfth consecutive month following higher-than-expected inflation. However, markets will monitor whether the bank adopts a less restrictive tone in its communication. Most economists anticipate the first rate reduction by February. After five weeks in red, the 50-week moving average of 0.6640 becomes more relevant as resistance.

Other Events and Earnings

The PMI figures for Europe will be released on Monday alongside a meeting of the Eurogroup. Canada's trade balance figure for the previous month is scheduled for Tuesday. The BOJ will publish the minutes on Wednesday. Data on trade balances for China and Australia are expected on Thursday. Friday brings Canadian employment numbers for the previous month.

Several major global corporations are also set to announce quarterly results. These include Vertex Pharmaceuticals, Palantir Technologies, Ferrari, Apollo Global Management, Novo Nordisk, Qualcomm, Arm Holdings, Arista Networks, Duke Energy, Persimmon, Rolls-Royce,  J Sainsbury, and Tate & Lyle.